Family Office Private Equity: The Best Pathway into Finance for Non-Traditional Candidates?

“Help! I’m a career changer / attended a non-target school / am 35 years old and want to change industries. How do I get into investment banking or private equity?”

My normal answer is: “Network a lot and think about other fields that have some overlap, such as search funds and real estate.”

But I might have another suggestion now: Apply to family offices.

Our reader today followed this strategy and used it to move from a pre-med and startup background into family office private equity:

From Medicine to Finance: Private Equity Recruiting 101

Q: Can you summarize your story for us?

A: Sure. I attended a target school, completed the pre-med track there, and planned to go into medicine after graduation.

But I always had an interest in finance as well, and I realized after graduation that I wasn’t too enthusiastic about medical school.

So, I decided to start my own restaurant-related small business, ran it for around a year, and then joined a startup to work on day-to-day operations and product management.

Although I spent most of my time in those areas, I also helped with business development and fundraising.

This whole time, I was taking the CFA exams to prove my knowledge of business and finance for future roles.

I networked by contacting alumni and cold emailing different firms, and eventually, I saw a posting for a “family office” job on my university’s job site.

I cold emailed the CIO to introduce myself, impressed him, went through interviews, and won an offer in the private equity team.

Q: Before we move on, can you explain what a “family office” is, and how it differs from traditional private equity firms and hedge funds?

A: The basic difference is that family offices do not raise capital from outside investors (Limited Partners or LPs).

Instead, they invest the assets of one family (single-family offices or SFOs), or sometimes multiple families and individuals (multi-family offices or MFOs).

There’s a huge variety of family offices; on one end, there are “institutional offices” such as Michael Dell’s that operate like large hedge funds, with internships, training, and very structured processes.

On the other end of the spectrum are smaller offices that invest in funds but not do any direct investing; they’re more like funds of funds.

Multi-family offices often operate more like funds of funds because each single family isn’t big enough to open its own office; recruiting and the job itself may be more similar to asset management.

Single-family offices frequently have the resources to build out big direct investment teams, and the more established SFOs often hire from investment banks and private equity firms.

The more money the family has, the more they can afford to hire talent from the top traditional finance firms.

Some family offices have operated private equity teams for a long time, and more offices have been building out their PE teams over the past decade (since the 2008 financial crisis).

Private equity works differently at each office, but a few key differences at mine include:

• Sources of Funds: Rather than raising money from LPs, we invest the annual cash flows of the family-owned business. We don’t allocate specific amounts of capital to different asset classes for diversification purposes; instead, we just look for great opportunities across all asset classes, and we focus on absolute returns.
• Investments: We make quite a few co-investments alongside mega-fund PE firms in leveraged buyouts, and we also do growth equity-type deals. We rarely lead leveraged buyouts, but we can lead other, smaller deals.
• Industries: We have invested across all industries, but we do have more expertise with family-owned businesses, so we tend to play a bigger role in those deals.
• Due Diligence: We prepare internal memos for investments, but we often rely on the due diligence findings of external partners instead of doing everything ourselves.

Q: You mentioned that more family offices are building out their direct investing teams. What’s driving that trend?

A: One big factor is that hedge fund performance has not been reflective of the traditional “2 and 20” fee structure.

Many family offices think the 2% management fee charged by traditional funds is absurd because they only want to pay for performance.

Also, many family offices dislike funds where GPs have little “skin in the game,” i.e., where they contribute little-to-nothing of their own money but still charge high fees.

Private equity funds have performed better than hedge funds, but many family offices still view management fees there as exorbitant.

Finally, more family offices want to be involved directly in the investment process instead of paying others to manage their money.

So, family offices have been poaching MDs and Partners from established firms by saying, “You’ll have a better life, more autonomy, and potentially higher compensation if you perform well. Also, we’re lightly regulated.”

From Cold Email to Job Offer: Recruiting at a Family Office Private Equity Team

Q: OK, thanks for explaining that.

Moving back to your story, what was the recruiting process like?

A: My team was brand new at the time, so the CIO was looking for “candidates with potential, who could be molded into top performers.”

They didn’t want candidates who had already been through extensive training elsewhere because the CIO wanted to shape them from the ground up.

So, my interviews were mostly behavioral (Why private equity, how I thought about investments, and how I had helped the startup raise capital).

They also asked me for an example model and investment memo, but it was a short and simple exercise since our team doesn’t do much deep due diligence.

At larger and more established family offices, the interview process is similar to the one at traditional PE firms.

At family offices that focus on indirect investing, expect something like the process in portfolio management or funds-of-funds interviews.

Q: So, what made you stand out?

Why did they pick you over everyone else?

A: The CIO liked my non-traditional background and how I had taken the initiative to find his contact information and cold email him.

I fit the profile they were seeking – my work experience was not in a traditional field of finance, but I still understood how investors think, and I had learned enough via the CFA exams to prove my interest.

Also, I fit the family’s culture well because my business and the startup I had joined were related to their industry.

“Fit” is even more important than in traditional PE because family offices have unique cultures, and people tend to stay in their jobs a much longer time.

Family Office Private Equity: A Day in the Life

Q: OK, great. What has the job been like so far?

A: Overall, I’ve enjoyed it a lot. The best parts are:

• No Sourcing – We have so many inbound deals that cold emailing and cold calling are unnecessary.
• Industry Exposure – We do prefer certain industries, but I’ve seen deals in almost all sectors so far.
• Deal Process Exposure – I work on all aspects of deals, from modeling to (some) due diligence to negotiating the final agreement.
• Lifestyle – There’s no “facetime” here, so if you’re done at 6 PM, you can go home. If there’s an active deal, we’ll work longer hours and come in on weekends, but outside of that, the hours are great.

Q: Can you expand on that last point? What’s an average day on the job like?

A: On an average day without an active deal, the hours are 9 AM – 6 PM.

I might arrive at 9, prepare for the day’s meetings, and review portfolio company news.

Meetings begin around 10. We meet existing portfolio companies, companies seeking funding, bankers pitching deals, and even companies that want to partner with our portfolio companies.

After a few hours of meetings, I work on models, term sheets, or due diligence for active deals. Much of this work takes place over the phone and email because the other parties are in different locations.

We also have internal investment committee meetings in the afternoon, but the team is so small that the process is still informal.

Our involvement with a portfolio company depends heavily on the company’s industry – we’ll be more hands-on with a company that’s complementary to the family business, but with others, we’ll just request quarterly updates and provide occasional help.

Q: What is the compensation like?

A: I didn’t come from an investment banking background, so my compensation is lower than pay for post-IB Private Equity Associates at traditional firms.

It’s average pay for “Investment Analysts,” i.e., students that join buy-side firms directly after university, in this area.

But compensation varies widely at family offices, and if the office is more like a traditional PE firm or hedge fund, the compensation will be closer as well (and the hours will be worse).

At many family offices, there are far more MDs and senior professionals than junior people.

Their compensation is tied heavily to investment performance, and they may not even earn much of a base salary.

Also, they may have to contribute some of their own money to each deal to ensure alignment with the family office.

Q: Thanks for explaining that. How easy or difficult is it to advance?

A: It tends to be harder than in traditional IB/PE because once people start working at a family office, they can stay there for a long time.

Turnover is low because they get a good lifestyle, more autonomy, and more interesting work.

It’s similar to the difficulty of advancing in corporate development: Few ex-bankers want to leave such a good job.

On the other hand, if you do a great job and establish a good relationship with the family, you’ll get many exit opportunities since family offices tend to be deeply connected with PE/VC funds, portfolio companies, and other family offices and successful entrepreneurs.

Q: Is there anything else you want to mention about family offices that we haven’t already discussed?

A: Family offices are becoming more popular because of increased regulation and lower pay at traditional finance firms.

Overall, the most senior team members – people who join at the CIO level – tend to get the best deals.

Joining a family office private equity team as a junior team member makes the most sense if:

1. You’re from a non-traditional background and you want to work in private equity.
2. You’re from an IB/PE background and you want to keep working on deals, but you want a better lifestyle.

These points apply more to the smaller/newer family offices and less to the established, institutionalized ones.

Q: Great. Thanks for that summary, and for your time.

A: My pleasure.